China July Trade Data Disappoints

By Bhaskar Prasad | August 10 2012 12:35 AM

China reported a trade surplus of $25.1 billion in July amid slower-than-expected growth in exports and imports, raising concern that the world's second largest economy isn't doing enough to stimulate the economy and avert a slowdown.

REUTERS

Chinese one yuan coins are placed on 100 yuan banknotes in this illustrative photograph taken in Beijing

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The customs data released Friday show that the exports advanced just 1 percent in July compared to the same month last year, down from 11.3 percent in June. Imports rose 4.7 percent in July compared to the same month last year, down from 6.3 percent in June.

The report comes after it was announced Thursday that the rate of inflation in China slowed down in July from the previous month, showing signs of a gradual decline in the price pressure to make room for monetary easing. Data from the National Bureau of Statistics showed Thursday that the consumer price index of China rose 1.8 percent in July from a year earlier, down from 2.2 percent in June.

The diminishing inflation should be good news because it can help the government invigorate growth without much concern about the rising prices. Earlier, Beijing said that China's consumer price inflation target for the year would be around 4 percent.

Meanwhile, China's industrial production grew at a reduced pace in July compared to that in June, indicating that the weakening global demand and the debt burden faced by the euro zone are adversely affecting the country's economy. The data released Thursday by the National Bureau of Statistics showed that China's industrial production rose 9.2 percent in July compared to that in the same month a year ago, down from the 9.5 percent increase in June.

There have been fears of a hard landing after data showed earlier last month that China's economy slowed down to 7.6 percent in the second quarter, down from 8.1 percent in the first quarter. Beijing is targeting a growth rate of 7.5 percent this year. In 2011 and 2010, the economy grew by 9.2 percent and 10.4 percent, respectively.

The continuing debt crisis in Europe and the tentative U.S. recovery have hurt the demand for exports, the key driver of China's economy. The IMF has warned that the escalation of the euro zone debt problems could slash China's 2012 GDP growth in half.

Markets worry that China's investment-driven economic model, though successful for decades, is no longer seen as sustainable with the consensus that reforms will be needed to prevent a sudden downturn.